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NVIDIA Corp. (NVDA - Free Report) posted third-quarter fiscal 2017 adjusted earnings (including stock-based compensation but excluding other one-time items) on a proportionate tax basis of 83 cents per share for the quarter, up on a year-over-year basis. The Zacks Consensus Estimate was pegged at 57 cents.
 

 

Revenues

Revenues not only increased 53.6% year over year to $2.004 billion but also surpassed the Zacks Consensus Estimate of $1.681 billion. The year-over-year increase was primarily due to better-than-expected growth across all the platforms, that is, GPUs gaming platform, Professional Visualization, datacenter and Tegra automotive platforms.

Revenues from the GPU business increased 53% year over year to $1.70 billion, driven by strength in GeForce GPUs Gaming revenues and datacenter. Revenues from Gaming GPU increased 63% on a year-over-year basis. Revenues from datacenter (including Tesla and Grid) came in at $240 million, up a whopping 193% on a year-over-year basis.

Tegra processor revenues increased 87% from the year-ago quarter and came in at $241 million, primarily due to better-than-expected growth in Tegra development services and automotive. Automotive revenues for the quarter came in at $127 million, up 61% year over year.

Moving to Professional Visualization, revenues from Quadro increased 9% year over year and came in at $207 million.  The increase was mainly due to strong demand in real-time rendering tools and mobile workstations.

Margins

NVIDIA’s adjusted gross margin (including stock-based compensation but excluding other one-time items) expanded 278 basis points (bps) from the year-ago quarter to 59%. In dollar terms, gross profit came in at $1.183 billion, up 61.2% from the year-ago quarter, primarily due to strength in GeForce GPU gaming platform and a higher revenue base.

Adjusted operating expenses increased 13.2% from the year-ago quarter to $540 million, as the company continued to invest in sales, general and administrative activities and higher research and development expenses. As a percentage of revenues, operating expenses however decreased 960 bps from the year-ago quarter to 26.9%.

NVIDIA’s adjusted operating margin was up from 19.7% to 32.1% during the quarter, reflecting growth in its GeForce GTX GPU business and lower operating expenses as a percentage of revenues. In dollar terms, adjusted operating income increased from $257 million to $643 million.

Balance Sheet & Cash Flow

NVIDIA exited the quarter with cash, cash equivalents and marketable securities of $6.67 billion compared with $4.88 billion in the previous quarter. Free cash flow in the quarter came in at $394 million, while cash flow from operations was $432 million. NVIDIA’s total debt (including current portion) was $2.99 billion.

During the first nine months of fiscal 2017, the company repurchased shares worth $509 million and paid a cash dividend of $185 million. NVIDIA also announced a quarterly dividend of 14 cents per share (up 22% quarter over quarter), which is payable on Dec 19, 2016.

Guidance

For the fourth quarter of fiscal 2017, NVIDIA expects revenues of approximately $2.10 billion (+/-2%). The Zacks Consensus Estimate is pegged at $1.697 billion.

Non-GAAP gross margin is expected to be 59.2% (+/-50 bps). Non-GAAP operating expenses are expected to be approximately $500 million. Capital expenditures are expected to be roughly in the range of $45 million to $55 million.  Non-GAAP tax rate is expected to be 20% (+/-1%).

In fiscal 2017, the company expects to return $1 billion to its shareholders. Moreover, for fiscal 2018, the company expects to return $1.25 billion to its shareholders in the form of cash dividends and share repurchases.

NVIDIA CORP Price, Consensus and EPS Surprise

Our Take

NVIDIA posted outstanding third-quarter fiscal 2017 results and provided an encouraging fourth-quarter revenue guidance. Also, the company registered year-over-year growth on both counts, primarily due to growth across all its four platforms. Also, better-than-expected demand for its gaming chips used in personal computers helped the company to post encouraging results.

Furthermore, we believe that NVIDIA’s innovative product pipeline and strength in gaming and high-end notebook GPUs keep it well positioned. We also believe that the higher adoption of NVIDIA’s Tegra processors could act as a catalyst, going forward.

Nonetheless, competition from the likes of Intel (INTC - Free Report) and QUALCOMM Inc. (QCOM - Free Report) remains a near-term headwind.  

NVIDIA has a Zacks Rank #1 (Strong Buy). Investors may also consider Western Digital Corporation (WDC - Free Report) from the tech space, sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here

Western Digital has a long-term expected earnings per share growth rate of 1.2%.

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